SOUTH AFRICA

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Area (sq.km)
1,219,912

Population
43,586,097

Capital
Pretoria

Currency
rand

President
Thabo Mbeki

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Update No: 35 - (26/11/04)

The Bush victory in the US presidential election was seen as positive by investors because the administration is expected to maintain its loose fiscal policies, which will support consumer demand. Widening trade deficits have been the key reason for dollar weakness and if President George Bush maintains similar fiscal policies, the dollar's decline may continue. Should this be the case, US investors may want to further diversify their regional investment allocations. This will see increased fund flows to European and Asian markets. Emerging markets, including South Africa, should benefit from the allocation shift. Emerging markets, particularly in commodity-producing countries, stand to benefit from a sustained increase in commodity prices as a result of the weaker dollar, analysts say. 
The gold price has risen to 16year highs, gaining 5% in the year to date. With China still fuelling demand for the metal, analysts say there is still room for more gains. China's economy is growing at 9% year on year. In the US, the economic picture is not as rosy. "The big uncertainty does not centre on emerging markets any longer, but on the US," US economist David Hale told a conference mid-November. Hale forecasts a gradual weakening of the dollar, but not a freefall. Market sentiment is that the US is content to have a weaker dollar, as it makes US exports more favourable. The dollar has weakened 3,3% in the year to date against the euro, and almost 10% against the rand. As investors diversify away from the US, the currencies of commodity producers like South Africa seem to benefit. The commodities rally, coupled with rand strength, lower inflation and lower interest rates, has resulted in rising confidence and faster growth. A mini-ministerial meeting between the Southern African Customs Union (Sacu) and US trade representatives has been mooted for December to breathe life into struggling free-trade negotiations. The planned meeting may provide the push needed to ink a deal before the June expiry of the US Trade Promotion Authority Act, which could further complicate access to the lucrative US market. Negotiations ran into difficulties about mid-year, and a lack of substantive progress since then has made it impossible to meet the December deadline for conclusion of the talks. US private-sector representatives, on an annual official visit to South Africa said November 12 they were told the meeting was proposed so trade ministers could "regroup."
In a move set to keep South Africa and Africa on the European Union's (EU's) agenda, President Thabo Mbeki led a top delegation to the EU the first such visit by a South African president since 1994. When the EU included 10 new members in May this year, trade analysts feared that SA and other developing countries could fall off the EU's list of priorities. The EU is South Africa's biggest trading partner, accounting for more than 40% of the country's international trade, which is largely governed by the Trade, Development and Co-operation Agreement. This seeks to create a free-trade area with the EU by 2012. Last year, SA-EU trade amounted to R193,6bn compared with the North American Free Trade Area's (the US, Canada and Mexico) R58,7bn and the Association of South East Asian Nations' R18,3bn.The EU is the world's biggest trading bloc by value, with 450-million people. In demographic terms, it is the third-biggest region after China and India. Its enlargement in May from 15 to 25 members enhanced its strategic significance in global trade relations and positioned it as a significant force to take on the rest of the world on social, economic, political and military terms. Deepening relations with Brussels is one of Pretoria's key foreign economic policy challenges. Mbeki has taken to task people who have painted a bleak picture of Africa deliberately overlooking many positive aspects prevailing throughout the continent, saying a new Africa is in the offing. Addressing the European Parliament in Strasbourg, November 17, Mbeki quoted two writers - David Harland and Arnold Beichman- who had written negative articles on the African continent. President Mbeki argued that Africa was today involved in an extraordinary and creative endeavour that might contribute something new to the understanding of the capacity and ability of human beings to overcome adversity and build a new world of hope. He mentioned progressive moves such as the establishment and the process of establishing institutions as an African Commission, a Pan African Parliament, a Peace and Security Council, Pan African Criminal and Human Rights Courts, and the NEPAD programme.
President Mbeki has given support to Reserve Bank governor Tito Mboweni's stance that the market should be left to determine the value of the rand. Commenting for the first time in the exchange-control debate, Mbeki said there had been no discussions about government intervening in foreign exchange markets to weaken the rand. "We have not discussed any intervention that would radically alter the trend in terms of the value of the currency," Mbeki told the media soon after addressing the European parliament in Strasbourg November 17. The Reserve Bank is largely expected to keep interest rates unchanged at its monetary policy committee meeting next month. Analysts said the performance of the dollar would remain the key determinant of the future direction of the rand. 
South Africa has earned an enviable reputation for sound fiscal management and a progressive notch in the financial markets, says Finance Minister Trevor Manuel. "We have achieved moderate growth of the economy and there is encouraging evidence of an acceleration in the pace of job creation," he explained. The minister however pointed out that challenges ahead were formidable and more complex when compared to achievements. Minister Manuel was addressing delegates attending the Bureau of Economic Research (BER) conference, which took place November 18. The BER is a comprehensive economic consultancy service focusing on analysing and forecasting the broad international and domestic economic environments. The theme of the one-day conference was: the South African economy: the next ten years." Manuel also signalled that he would prefer a weaker rand. His comments helped to ease the local currency from a four-month peak of R5.96 against the dollar. Manuel's comments reveal a more sympathetic view of the plight of the export sector, which has come under strain because of the rand's 90% gain against the dollar since 2002. "Today I don't mind saying that a little less market confidence in the rand might be a welcome relief," However, Manuel believes companies should not rely on a weaker currency to boost profits. A strong rand does not bode well for exporters' bottom line, since they make their revenue in dollars, but cover their costs in rand. Econometrix Treasury Management analyst Michael Keenan said exporters could not rely "on a currency to keep your shop open". "Adjusting to a strong rand will make local firms more efficient, and more sustainably competitive globally," The economy is expected to sustain economic growth, which has grown for a record 63 consecutive months, the longest post-Second World War expansion since the 44 months achieved between 1961-1965. The BER expected the rand exchange rate to depreciate next year, adding to inflationary pressures and resulting in an increase in short term interest rates from mid-2005. Forecasting a rand/dollar exchange rate of R8 next year. 

GDP - Increased Growth Projected
South Africa's economy has been growing faster than official estimates have shown. That's what the revised gross domestic product (GDP) figures, due to be released by Stats SA early December, are likely to reveal. Stats SA is adhering to the international standard which is the equivalent of anti-insider trading rules for official statistics agencies no selective disclosure of information is allowed, so no one (government and the Reserve Bank included) has yet seen the new figures. The revision will be big, but in theory it could go either way. Stats SA emphasises it will tell it like it is, good or bad. But there is little doubt that its figures have been undercounting both the level of economic activity and the pace of growth over the past five years. So the revisions must be up. The only question is by how much. When the economy is in the upward phase of a cycle, as SA's has been for an unprecedented five years, official statistics generally tend to underestimate absolute levels of activity and rates of growth. The opposite tends to be true in the downward phase of a business cycle. But there are many reasons to expect increases in the figures, which use a much more comprehensive and up-to-date sample of economic actors and incorporate extra information from a variety of sources. Stats SA has introduced improvements in the past 5 years, most crucial of which is a business register that provides it with a frame from which to draw samples of economic activity in the various sectors. The old register was so archaic that many businesses weren't being counted. We've already seen results from the new one, which shows sectors like manufacturing and retail are 17-20% larger than previous estimates. That doesn't mean the whole economy is necessarily that much larger, but clearly its size was being underestimated. The nature of the economy has changed rapidly in recent years. The contribution of sectors that have been growing fastest, such as telecommunications or financial services was being undercounted using the old sectoral mix of the economy. That means the growth rate of the whole economy was being underestimated. With the good times rolling for SA's middle classes, and confidence running high, some economists are now talking revised growth rates of 5%-6%. Equally, though, there are likely to be sceptics who will greet any hefty upward revisions from Stats SA as a sign that the agency can't do its job properly. Revisions tend to cause nervousness, especially after the inflation figures had to be changed last year. In fact, the opposite should be the case. Any social or macroeconomic statistics should carry a health warning to the effect that they are, at best, only estimates. The issue is how good those estimates are. The new GDP estimates should draw in more and better information and incorporate extra checks so as to provide better estimates that give a more accurate picture of what the economy looks like and how it has performed. Revisions, in other words, are good, not bad. Internationally, all good official statistics agencies do them. No agency should be shy to admit its estimates were out. But it must explain why and how it has improved them.

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AUTOMOBILES

Ford SA deal to export engines to South America

Ford's Port Elizabeth engine plant will continue export production at full capacity until at least 2012 following its award of a contract to supply engines to South America. The group said November 4 it would start shipping RoCam engines, used in the Ikon passenger car and Bantam pick-up, to Brazil, Mexico and Venezuela from February next year. Since 2000, Ford SA has been exporting the 1,3l and 1,6l RoCam engines to markets in India, Russia, China and Europe. Brazil is the only other country to supply the engine. Ford spokesman Craig von Essen said initial projections showed that from 2007, production would be at 50% of total capacity. The group expected the reduction in exports due to changes in models worldwide. "But evidence has shown that there is still a strong demand for the RoCam engine." He would not say what the project was worth. The Port Elizabeth plant has a capacity of 240000 units a year and employs more than 1000 workers. Von Essen said that in the past five years the company had spent more than R1bn upgrading the plant in Struandale, Port Elizabeth. Ford CEO Deborah Coleman said exports to the South American markets were expected to reach 125000 units a year by 2009. The Port Elizabeth plant would be a single source of RoCam engines to Mexico and Venezuela, while exports to Brazil would supplement those made in Ford's Taubate plant in that country, Von Essen said. The announcement of the contract comes less than a month after the company said the RoCam engine would be fitted to the StreetKa and Ford SportKa models in Europe.

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FOOD & DRINK

Sabmiller gives it stick in the US

Despite huge concerns among investors about the wisdom of SABMiller's investment in the US, the group has made short work of turning these around.
And in its interim results to end-September, all the brewing group's divisions showed improved performance plus gains in market share and efficiency. Group turnover rose 14% to $7.18-billion and adjusted earnings were 38% higher at $583-million. Lager beer volumes were up 8% to 82-million hectolitres, while total beverage volumes topped 100-million hectolitres. Inexplicably, investors were surprised at the strength of the results, with some analysts - raising their expectations for the share. Merrill Lynch downgraded the group November 19, saying the fact that it was not looking at doing a share buyback meant it was at risk of being acquired. SABMiller's results reflect its ability to take on huge tasks and succeed. The enormity of the problem at the US-based Miller was never underestimated, yet the group has been able to turn it around relatively quickly. US volumes were up 2% and earnings before interest and tax grew by 23%. This was achieved despite it being a challenging half-year for the industry in the US with poor weather, rising energy and fuel costs and increased competition. But SA was still the biggest contributor to earnings before interest and tax at 30%, while the US and Europe contributed 26% each, Africa and Asia 15%, and central America 3%. Chief financial officer Malcolm Wyman said the company had significantly increased its share of the premium beer segment in SA. The proportion of premium brands in its product mix was now about 10%. The group's market share of all alcoholic drinks in SA was almost 60% and growing. In Europe, where the weather was cooler and wetter than the previous year, turnover was up 18% and volumes up 10%. In China, where the group pulled out of Harbin earlier this year, additional breweries were acquired in two provinces. The growth in volumes was 23% in China, while the Snow brand's volumes were up 30%. Cash from the sale of the group's investments in Harbin and Edcon pushed up its cash balance. The Edcon proceeds would be kept in South Africa to fund the proposed buyout of ABI minorities. About $600-million would be needed to close the ABI deal. CEO Graham Mackay said the global beer market continued to change rapidly and the group had "an enviable platform" from which to take advantage of these changes. It would continue to investigate larger transactions on their merits, he said.

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FOREIGN AFFAIRS

South African Trade Relations With Russia

South Africa has strengthened its economic and trade relations with the Russian Federation committing to take advantage of existing prospects in this regard. The commitment was made during the closing ceremony of the fourth session of the SA-Russia Inter-Governmental Committee on Trade and Economic Co-operation (ITEC) in Pretoria on November 19. Russian Minister of Natural Resources, Yuri Petrovich Trutnev, led the Russian delegation that included business representatives, while Foreign Affairs Minister, Nkosazana Dlamini-Zuma, led the SA delegation. The delegations met under sub-committees which included main groups of agriculture, social sector; minerals and energy, science and technology, trade, investment and banking, water affairs and forestry, and transport. Minister Trutnev said great economic potential existed between the two countries but practical steps were needed for agreements to impact positively on the lives of the people. "Both economies require practical steps - delays result in losses, and we have no right to lose as these impacts on our people. "We hope work will continue at a faster rate to impact on the people and governments of both Russia and South Africa," said Mr Trutnev. Dr Dlamini-Zuma reiterated the Russian minister's sentiments saying "signed agreements must be implemented" while new ones would evolve to respond to current challenges. "I must reiterate what has been said by Minister Trutnev - the economic potential that exists between both countries has not been sufficiently exploited - these opportunities must be exploited with a sense of haste and urgency," said Dr Dlamini-Zuma. The sub-committee of minerals discussed the possibility of facilitating the development of the Kalahari Manganese deposit through a joint venture between Russian companies and South Africa's Black Economic Empowerment firms. The venture will also provide ore beneficiation facilities at Coega.

South Africa and India forge business ties

Deals worth billions of rands were on the table as the most important initiative yet between South Africa and India was launched early November. Business heavyweights from India and South Africa cemented economic ties with the setting up of a CEOs' forum intended to bolster trade and investment. And, in another development, the Indian government opened a business centre in Durban to help cut the red tape in deals between the two nations. With more Indian businessmen looking to gain a foothold in South Africa, a high-powered delegation headed by India's wealthiest man, industrialist Ratan Tata, visited the country. Already Tata Motors and its rival, Indian car giant Mahindra & Mahindra, have made inroads into the South African motor industry with the recent launch of new vehicles. Tata Africa Holdings, a subsidiary of the Tata Group, is vying for a controlling stake in South Africa's second telephone network operator worth more than R4-billion. According to statistics released by the Department of Foreign Affairs, total bilateral trade is approaching R6.5-billion, with imports from India at R3.12-billion and exports to India at R3.35-billion. Indian investment in the country is estimated at $100-million. Tata and South African mining mogul Patrice Motsepe co-chair the India-South Africa CEOs' forum. The impressive list of Indian CEOs who have joined the forum includes Tata, cement and petrochemicals boss Tarun Das and Dr Krishna Ella, chairman of Bharat Biotech International Ltd. Motsepe, Tokyo Sexwale, Jay Naidoo, Vivian Reddy and Anant Singh are among the South African businessmen in the forum.

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INVESTMENT 

Companies to invest billions in South Africa

Domestic fixed investment in SA could be heading for record-breaking levels, with South African Breweries (SAB) joining a growing list of companies committing themselves to multibillion-rand programmes. SAB, part of the world's second-largest brewer, SABMiller, said it would invest R5bn in SA over the next five years. Economists said favourable conditions such as lower interest rates, low inflation and thriving consumer spending were spilling over into investment in new capacity, which broadened SA's manufacturing base. Big investment plans are seen as a strong vote of confidence in continued favourable conditions and could send positive signals to potential foreign investors. SAB MD, Tony van Kralingen, said the decision had been taken as a "direct result of SAB's confidence in SA's economy and its future prospects." 
Other major companies with ambitious investment plans include Sasol, with capital spending peaking at R15bn, and PPC, which said it would add a million tons of annual capacity at a cost of almost R1bn. Investment by vehicle makers is forecast to reach a five-year high of R3.5bn this year. 
In the public sector, public utilities Eskom and Transnet are set to spend R165bn to improve SA's infrastructure. These investment programmes may be spurring more companies to make decisions to invest more in new capacity. Lower interest rates are also encouraging companies to take their cash out of the bank and put it to use. Econometrix economist, Tony Twine, said the latest "bricks and mortar" investments were likely to create jobs because they were motivated by underlying growth. They were different from the investments SA has seen in the past decade, which displaced jobs as manufacturers opted for automation to become globally competitive, said Twine. He expected the investments to stimulate small, medium and micro enterprises. Twine said that enthusiasm about rising domestic fixed investment was tempered by concerns over skills shortages, which could act as a tether to potential economic growth. The construction industry has already raised alarm that there may not be enough engineers to take full advantage of the current economic growth. SAB's five-year multibillion-rand programme signals a big leap in investment levels at the company. Its total spending in SA over the past decade came to R4bn. "After about ten years of relatively static volume, the company has experienced significant growth, over the last two years in particular," said Van Kralingen. PPC had to bring expansion plans forward as demand for cement an indicator of fixed investment exceeded the most optimistic forecasts. In its last financial year, PPC reported a 14% increase in sales 

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MINERALS  & METALS

Alcan to propose alternative smelter plan

Canadian aluminium producer Alcan said November 18 that it would launch a fresh feasibility study into the construction of an aluminium smelter at the Coega industrial development zone in Eastern Cape. Alcan was now looking to use a different technology to that included in the original plans by French company Pechiney. Alcan, which merged with Pechiney last year, said the new study would be completed in the second quarter of next year. Pechiney's plan to build a 2,2bn aluminium smelter at Coega was widely believed to be close to completion last year when the merger thwarted it. The new study proposes using an older technology than the latest AP-50 technology in Pechiney's original plans. "The focus of this new study will be the use of the highly efficient and advanced AP30 or AP35 smelting technologies," Cynthia Carroll, president and CEO of Alcan's Primary Metal Group, said November 18. Alcan said it would conduct the fresh study with government and the Industrial Development Corporation (IDC). The IDC and power utility Eskom are committed to taking a 12,5% stake each in the original project. Carroll said that the new study was a direct result of ongoing talks between Alcan and a government delegation led by trade and industry department director-general Alistair Ruiters. Alcan said that the Coega smelter was expected to produce up to 660,000 tons of aluminium a year. "If the project receives the goahead, construction could possibly start as early as the end of 2005, with the first metal produced in 2008," said Alcan. SA has waited a long time for a decision on the smelter, which was first proposed by Pechiney about three years ago. The Coega industrial development zone and new port facility near Port Elizabeth were intended to be a focal point for future foreign investment, said Alcan. The Canadian group said in its statement that Trade and Industry Minister Mandisi Mpahlwa was pleased with the progress to date on the proposed project. It quoted IDC acting CEO Raisibe Morathi as saying that the corporation welcomed the opportunity to work with Alcan on the development.

Platinum surplus expected for first time in seven years

The market for platinum is expected to move into surplus for the first time in seven years, says a new report by platinum maker Johnson Matthey. This is partly a result of production increases in SA as well as a decline in demand for platinum jewellery in China. The latest bi-annual platinum group metals report was presented in Johannesburg November 16 by Johnson Matthey's divisional GM for platinum group metals market development, Jeremy Coombes. He expects a 1% rise in platinum demand this year to 6,47-million ounces. Coombes said two factors were moving in opposite directions. "There is good growth in automotive and industrial demand, but offsetting that is a reduction in purchases by the Chinese jewellery trade in 2004." Meanwhile, supply will reach a record 6,43-million ounces this year, an increase of 4%. "The platinum market is slightly in deficit this year the sixth year in a row it is in deficit," he said. "However, it is beginning to move to a position of balance." The platinum price averaged 845/oz in the first 10 months of this year, with firm overall demand and interest from hedge funds and other investors. Automotive demand for the metal is strong in Europe, supported by a steady move to diesel cars, which use platinum catalysts, and of tighter regulations on vehicle emissions. However, the high price has led to a reduction in demand in China's jewellery sector and a switch to white gold and palladium. "Total Chinese jewellery demand for palladium is projected to reach 510000oz this year, from just 25000oz last year," the report said. Coombes also noted a new trend among US investors, who have been buying 1oz palladium bars. He said 150000oz would have been sold this way this year. He said next year the market would move into surplus for the first time in seven years," and we expect platinum to trade between 760/oz and $880/oz over the next six months." Meanwhile, the market for palladium is expected to remain in surplus, with trading between 160/oz and $250/oz over the next six months. The report said that an increase in platinum supply was being led by the expansion of operations in SA. The projected increase in platinum supply in SA this year will be led by Anglo Platinum, while Impala Platinum is set to match last year's production level. Lonmin and Aquarius Platinum are both set to boost output, while the suspension of operations at Northam Platinum after a fatal fire will reduce output for the year. Russian output is expected to fall, while output in North America is set to rise, and the rate of expansion of production in Zimbabwe will slow this year. 

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MINING 

US court blow to Gold Fields

Gold Fields lost the fourth and final leg of legal cases it brought before the courts and competition authorities in its bid to fend off Harmony Gold's hostile takeover November 23. A US district court in Manhattan, New York, denied its request to halt Harmony's bid for 34.9% of Gold Fields. District judge, Richard Berman, rejected a claim by Gold Fields that there was "a misleading discrepancy" between the estimate of Harmony's gold reserves contained in a registration statement and one included in an expert's report. He said the two estimates were based on different data and that the discrepancy had been fully disclosed to Gold Fields shareholders. "Both Gold Fields and Harmony will survive the first step of the tender offer as separate entities," Berman wrote in a 14-page ruling. He said the courts could rescind transactions if it later turned out that Harmony's bid violated securities laws. Gold Fields argued that Harmony's strategy could effectively seize control of the target company without the support of the majority of Gold Fields shareholders. There will be a full offer to Gold Fields shareholders following the early settlement offer. Gold Fields spokesman, Willie Jacobsz, said last night that he was still studying the New York ruling. Harmony CE, Bernard Swanepoel, said: "This was the last technical challenge they could dream up, and it is now up to Gold Fields shareholders to exercise their democratic right." Gold Fields will lodge further appeals after it lost two earlier cases in SA. These will be at the Appeals Court and the Competition Appeals Court. Gold Fields also lost a case it brought before SA's Securities Regulation Panel, which it has also appealed. The US court ruling does not spell the end for Gold Fields. It is also trying to win over Norilsk Nickel, Harmony's key ally in the bid and a 20% shareholder in Gold Fields. If it is successful, this could spell disaster for the Harmony bid. Gold Fields executives are believed to have held secret talks with Norilsk Nickel of Russia to buy the 20% stake that the Russian resource group holds in the South African mine. Gold Fields' strategy is aimed at thwarting Harmony's hostile takeover bid. The purchase from Norilsk would require a generous premium from Gold Fields for the Russians to be able to break an existing deal to sell the Gold Fields shares to Harmony, and this is believed to be one issue discussed by Gold Fields and Norilsk bosses. Gold Fields could fund the purchase with cash, or by offering some of its offshore assets in a swap, or it could fund the share purchase through a rights issue.

Impala may put $750m into Zimbabwean mines

Impala Platinum the world's second-largest platinum producer, may launch a $750m spending plan before March next year to boost production in Zimbabwe six-fold over the next decade. "A realistic target to start should be the end of the first quarter," CEO, Keith Rumble, said in an interview at the company's headquarters in Johannesburg. Impala first needed to agree on investment conditions with Zimbabwean President Robert Mugabe's government, he said. The project's first phase, to cost $106m, will double output at Impala's Ngezi mine in Zimbabwe to 150000oz a year. The company is relying on the country to fuel growth as South African mines are depleted. Zimbabwean production by 2014 will reach 610000oz, or 22% of the company's total, up from 7% at the end of next year, Impala forecasted. Zimbabwe's government plans to change rules governing foreign-exchange accounts held outside the country, and has proposed companies sell 30% of their mines to black investors within 10 years to make up for nine decades of discrimination under colonial rule that ended in 1980. Impala is seeking clear guidelines on managing dollar-denominated costs and debt, and wants permission to keep importing fuel directly from SA. The company is also awaiting an accord between the governments of SA and Zimbabwe that would guarantee the property rights of South African investors. "We have engaged with senior people in the government," Rumble said. "They realise the importance." Impala's land in Zimbabwe, including a 50% stake in the Mimosa mine, holds as much as 180-million ounces of platinum. Zimbabwe's reserves of the metal, used in jewellery and pollution-control devices in cars, are the world's second largest behind SA. Mugabe, who has led Zimbabwe's government since independence in 1980, needs investors after the economy collapsed following his government's seizure of white-owned commercial farms. Impala, to comply with the deadline for selling assets to black investors, plans to sell 15% of its Zimbabwean mines to Nkululeko Consortium once the group secures financing. Shedding 30% of its assets in the country would cost about R400m, Rumble said, basing the estimate on Impala's investment of R1,2bn. "The ability to fund a deal will be a concern in a small economy like Zimbabwe," Rumble said. "It's a big ask, but it could be done with the support of the Impala balance sheet."

Strong Rand kept SA mines out of commodities boom

The annual report of the Chamber of Mines, which was published early in November, highlighted the effect of the strong rand on the industry, suggesting that it has prevented South African producers from benefiting from a commodities boom. The report showed that commodity prices rose 68% between October 2001 and July this year." SA has almost entirely missed out on the boom," the chamber said. "Driven by the value of the rand-dollar exchange rate in 2003 and generally higher US dollar commodity prices, the value of local mineral sales decreased by R20bn in 2003." The only major sector that experienced sales growth was chrome, where there was a 4,6% rise in sales to R1,2bn. President of the Chamber of Mines, Con Fauconnier, said "earnings from the sale of virtually all of SA's major mining commodities were substantially reduced as a direct result of the strong rand." "The sustained strength of the local currency for most of 2004 makes it evident there will be no notable recovery when this year's mineral sales figures are made available." Chamber CE, Zoli Diliza, said there had been "several dealings" with the Reserve Bank. The aim had been to persuade the Bank "to develop a set of effective buffers with potential to inhibit currency volatility going forward."

De Beers black empowerment plan

De Beers' major shareholders the Oppenheimer family, Anglo American and the Botswana government plan to finalise a multibillion rand black empowerment deal for the group's South African diamond mining operations by mid-next year. Interest in the proposed deal is intense, with about 100 expressions of interest having been received by parties engaged in talks with the shareholders, although no decision has yet been taken on what kind of vehicle would be used. De Beers management is considering two broad options, either a conventional empowerment sale to one individual or a consortium, or a distribution of shares to employees through a share option plan. The diamond giant's representatives briefed Parliament's minerals and energy committee November 12 on the company's transformation agenda, admitting that no sufficient progress had been made so far, both in terms of transformation and employment equity. The committee also heard that De Beers would make an announcement that all sight holders in SA would have to have black empowerment partners if they wanted to be allocated diamonds from De Beers in future. They also have to have a development plan to show how they would get partners and how they would promote beneficiation and skills development. De Beers Consolidated Mines finance head, Stuart Brown, said the group's South African diamond mining operations would be separated to allow for black partners to be brought in. Investment advisers and bankers had been appointed to assist with the process. "It is our intention to comply with the mining charter as soon as practically possible and to look at doing a BEE deal for the actual company towards the middle part of 2005," Brown said. Brown said De Beers Consolidated Mines was a "highly complex" company and it was therefore necessary to establish clarity as to what was being sold. With five of the group's local mines running unprofitably, a programme had been adopted to transform the company into one with "a brighter future and not one that will expire in 2015." "In addition to doing this deal we are also trying to turn the firm around so that it is attractive to future investors. We want to transform the industry on a profitable basis." The group realised transformation would be key to the success of its applications for exploration and mining licences and for conversions. It had therefore established Project Rainbow last year to prepare it for transformation.

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TELECOMMUNICATIONS 

Deregulation

The South African telecommunications market is gearing up for change after the announcement in September that deregulation would occur by February 2005. The "big-bang" approach to liberalisation surprised analysts, who have welcomed it as a spur to competition. However, they warn that in the months following deregulation there will be casualties as the market determines which businesses are sustainable. South Africans have been used to a monopoly in fixed-line telecommunications for decades and although Telkom no longer has a legal monopoly, it has effectively retained it in the absence of competition. Industry watchers say the second network operator (SNO) is still at least a year away from beginning operations. Mike van den Bergh, managing director of Gateway Communications, says that from February next year, the industry will be like the Wild West. "There will be so much competition ... There will be lots of telecommunications service providers post-February 2005. The barriers to entry have been substantially lowered." He says the main point of the new legislation is that it allows companies other than Telkom and mobile network operators to carry voice traffic over their networks. This is likely to drive down prices and offer end users more variety in services they can subscribe to. The cost of international calls is expected to drop substantially. Van den Bergh says it won't all be plain sailing, however. "Interconnection with Telkom and mobile operators could become a thorny issue," he says. At some point, voice traffic within an organisation's network has to be carried over either Telkom or the mobile operators' networks. "Traditionally the incumbents have defended their turf," says Van den Bergh. "They can either refuse to interconnect calls or charge a fortune for them. Hopefully the Independent Communications Authority of SA (Icasa) will be able to get rates set at a reasonable level." Rick Rogers, country manager at Nortel Networks, says deregulation will force fixed-line operators to be more creative with offerings. "In the UK, for example, British Telecom has introduced a handset that can handle mobile and fixed-line calls. So while users are within range of a fixed-line connection, calls are routed that way. When they move out of range, the call is switched to the mobile network."

Union anger at Telkom share deal

South African unions have described as "disgraceful" the use of a government pension fund to buy telecoms shares for a group of former government officials. The country's public pension fund has admitted it paid a discounted rate for a 15% stake in Telkom on behalf of the Elephant consortium. The consortium includes a former head of the telecommunications ministry. The union body Cosatu has demanded that the pensions group release the full details of the acquisition. The 6.6bn rand ($1.09bn) purchase, billed as fulfilling Telkom's obligations under the Black Economic Empowerment initiative, has been widely criticised. South Africa's Financial Services Charter requires firms to be one-quarter black-owned before the end of the decade, in a move meant to give poor South Africans a larger stake in the economy. Cosatu has accused the Elephant consortium leader, Andile Ngcaba, of laying the groundwork for the deal while he was still director general of the Communications Department. Rumney added, "It leaves a bad taste in the mouth," said Reg Rumney, director of Johannesburg-based think tank BusinessMap. "When government facilitates deal for politically connected figures, surely it is cronyism," he said. "Some foreign investors are already worried about Black Empowerment creating a small group of oligarchs and this is going to add to that," Mr Rumney added. South African Chamber of Business chairman, James Lennox, told the Business Day newspaper that there was "an uneasy feeling in business about the close links between individuals involved in the deal and the highest office in the land." The Public Investment Commissioners (PIC) said the Elephant group approached it for funding after winning a bidding battle for the stake in the telecommunications monopoly. The PIC, which bought the stake at a 15% discount on its current market value, said it would hold on to it for six months while Elephant finds private financing for the purchase. "This disgraceful misuse of the pension fund shows no respect for the rights of workers in deciding the fate of their hardearned monies," Cosatu spokesman, Patrick Craven, said in a statement. "The PIC cannot be seen to have a blank cheque to do as they please," he added. Mr Ngcaba, who is chairman of Dimension Data Holdings, Africa's biggest computer services company, has denied any wrongdoing or conflict of interest. The application to purchase the Telkom stake from the US-Malaysian Thintana group was "commercially run and a competitive process," the Associated Press news agency quoted Mr Ngcaba as saying. 

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TRADE

Deal with European nations close

South Africa is on track to sign its third free trade agreement in December in a move that will give local exporters increased access to four new markets in Europe. This will advance SA's position in the global race to form free trade agreements. The deal will bring to a close about 18 months of negotiations between the Southern African Customs Union (Sacu) and the European Free Trade Association (Efta). The four countries that make up Efta, Switzerland, Norway, Iceland and Liechtenstein are not part of the European Union, with which SA already has a free trade agreement. The Efta deal was expected to harmonise SA's trade relations with all of western Europe. SA's chief trade negotiator, Xavier Carim, said that he was optimistic that the deal would be signed in December, although some technical and legal details may have to be concluded at a later stage. Carim said trade ministers of the countries involved may be able to sign off the agreement in May 2005. Sacu had also hoped to conclude a free-trade deal with the US in December, but differences of opinion on several matters have hampered progress to the extent that the December deadline will not be met. The deal with Efta would be a scaled-down version of the original agreement. Efta members earlier agreed to Sacu's request to shelve complex issues such as government procurement, intellectual property and investment. The five Sacu member countries are still looking to harmonise their own trade policies on these issues. The deal is important for Efta, because Sacu is the first partner on the African continent with which the Efta states are concluding a comprehensive trade agreement.
Switzerland, which is the largest economy in Efta, imports large quantities of precious stones and metals, plastics and vehicles.

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