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SOUTH AFRICA


  
   

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

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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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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: 028 - (04/05/04)

Observers of South Africa's third elections congratulated the Independent Electoral Commission (IEC) for running the elections successfully and welcomed the prevalent peaceful atmosphere. Southern African Development Community (SADC) observers who were deployed in all nine provinces acknowledged that there were problems, but said these were merely technical. The good news for South Africa and the world at large is that even eve-of-election tensions and some inter-party violence in KwaZulu-Natal - scene of fierce pre-election fighting in 1994 and again in 1999 - did not create any significant problems in terms of the holding of a free and fair election. This is all the more remarkable because a decade ago South Africa had no electoral law or system capable of ensuring that all South Africans could take part in electing their rulers. The country's first democratic election was a ramshackle affair, with ballot papers being airlifted to voting stations long after polls had opened, rumours of missing or stuffed ballot boxes and the final result perhaps decided more by political negotiation than the strict counting of ballot papers. The ANC's political hegemony continues, having garnered 10,769,692 of the 15,464,544 votes counted by the IEC, and all the opposition parties still struggle to convince substantial numbers of black people to vote for them. The opposition parties simply do not present themselves as viable alternatives to govern the country. Forgotten was the ANC's dismal record at fighting unemployment, delivering decent healthcare for the poor and reversing the legacy of apartheid education. Cast aside, too, were memories of the thousands who died and hundreds of thousands who suffer unnecessarily as a result of the government's handling of the HIV/Aids crisis. The second leading party, the Democratic Alliance (DA), has 12.37%, with 1,913,339 votes. Mango-suthu Buthelezi's Inkatha Freedom Party remains the third leading party, with a paltry 1,078,555. 
Thabo Mbeki was sworn in as President of the country at the Union Buildings in Pretoria April 27. In his inauguration speech, Mr Mbeki promised his second and final term would focus on the millions of South Africans who remain in poverty. Mbeki has addressed opposition concerns that a two-thirds ANC victory could open the door to sweeping changes to the constitution, which is currently considered one of the world's best in terms of a balance between human rights and state power. Despite Mbeki's denials, it is believed likely that the constitutional clause preventing the president from having a third term in office may be under review; few are betting against Mbeki and his close allies pushing for that change before the next elections in 2009. Mondli Makhanya, the Sunday Times editor, believes Mbeki is unassailable in the party going forward. This he attributes to the notion that Mbeki, more than anyone else in the ANC including Mandela understands power as a commodity and not necessarily as a goal. Perhaps the ANC's most impressive performance has been defensive rather than in attack. Six months ago, opposition parties had at their disposal a range of offensive weapons the high level of unemployment, HIV/AIDS, arms-deal corruption, among others. In these circumstances, just holding on to its support base suggests an impressive electoral performance. Beyond the ANC's victory, this poll marked a number of other interesting developments, among them the near-demise of the once mighty National Party, now in its transformed incarnation as the New National Party (NNP). The NNP plummeted from its 20 per cent second place in the first all-party elections held a decade ago to a mere shadow of its former strength, garnering just 1.76 per cent of the vote and pushed well into the background in sixth place. Another major shift was towards the opposition Democratic Alliance (DA) which jumped from a little over 9 per cent to under 13 per cent. This is far short of the 20 per cent predicted by DA leader Tony Leon, but a clear indication to the ruling party that the DA is more than merely a distraction. 

ANC : 279 out of 400 seats
The Independent Electoral Commission (IEC) has officially pulled down the curtain on the 2004 general elections by declaring them "free and fair", with the African National Congress (ANC) smiling all the way to Parliament with 279 seats out of 400. This, after the party scooped 69.68 percent of the national votes as well as bagging all provinces including KwaZulu-Natal and the Western Cape, where it won the majority of seats. This is the biggest win for the ANC since the first democratic elections 10 years ago. The official opposition party Democratic Alliance (DA) came second and will occupy 50 parliamentary seats while the Inkatha Freedom Party (IFP) will take up only 28 seats. The United Democratic Movement (UDM) clinched nine seats, while the New National Party (NNP) and the Independent Democrats (ID) clinched seven seats each. The African Christian Democratic Party received six seats with the Freedom Front Plus four while the Pan Africanist Congress and the United Christian Democratic Party each recorded three seats. Also making the trip to the national legislature is the Minority Front and Azanian People's Organisation who will each occupy two seats. Both IEC chairperson Brigalia Bam as well as President Thabo Mbeki commended the nation for the way it carried itself during the elections, especially the political parties and security forces. "On behalf of the Electoral Commission, I wish to offer my gratitude to all parties," she said, thanking the security forces for their good work in building a wall of steel around the polls. 

Democratic Alliance Gains
South Africa's tough-talking Tony Leon succeeded in bolstering his party's standing as the official opposition, making a better-than-expected showing in elections held 10 years after apartheid. Nevertheless the future of the mainly white-based Democratic Alliance as a viable alternative to the almighty African National Congress (ANC) of President Thabo Mbeki remains bleak. The Democratic Alliance picked up 13 percent of the vote, up from 9.5 percent in the last election in 1999 and a major jump from its dismal showing of just 1.7 per cent in 1994, when it was known as the Democratic Party. But many of those gains were off the New National Party (NNP), the successor to the National Party, which for decades was the backbone of the apartheid regime and is steadily losing appeal among white voters. Leon, at 47 one of the younger faces on the South African political scene, led a hard-hitting campaign under the slogan "South Africa Deserves Better", attacking Mbeki's record on job creation, his failure to stem AIDS and his refusal to denounce human rights abuses in neighbouring Zimbabwe. At rallies and in media interviews, Leon expounded on his views that South Africa is in danger of becoming a "one-party state", retreating from the democracy it fought so hard to establish 10 years ago. "We are going to give our democracy the best 10th birthday present it could hope for: we are going to create a genuine two-party system," The DA is now uncontested as the major opposition party, which is a substantial achievement, considering it had 1.7% of the total vote in 1994. But here too, the glass is by no means full. The increase in DA support has come largely at the expense of the NNP, which has imploded in this election, and has dismally failed to live up to its own bold prediction it would win as much as 20% of the vote. The inroads the DA has made among black voters have been tiny, and it has been unable to cash in significantly on a favourable environment in which to hold the election.

Cabinet re-positioning
President Thabo Mbeki announced wide-ranging, but largely cosmetic changes to his cabinet April 28, leaving unanswered questions about how suited it will be to fulfilling his promise of a renewed focus on poverty alleviation and delivery. Veteran politicians Naledi Pandor and Pallo Jordan and New National Party leader Marthinus van Schalkwyk are among fresh faces in Mbeki's new Cabinet, which he is touting as a "very strong team" to shift the focus of government from policy to implementation. Mr Mbeki named five new women to his government team after saying April 27 that "We could not speak of genuine liberation without integrating within that the emancipation of women." There are now 22 women in the 49-strong team of ministers and their deputies. Mbeki appointed an expanded 28-member executive, which was welcomed for the strength it provides in key economic ministries such as trade and industry, finance and public enterprises. Trevor Manuel stays at the helm of finance, while Alec Erwin moves from trade and industry to public enterprises, replaced by former deputy finance minister Mandisi Mpahlwa. The ANC's 45% share of the vote in the Western Cape will allow it to form a government with a partner of its choice. However, it faces a trickier situation in KwaZulu-Natal where there was a strong feeling at ANC headquarters that, for the sake of stability in the province, the ANC must rope the IFP into government rather than the smaller parties. Nevertheless, The mainly Zulu Inkatha Freedom Party has left South Africa's cabinet after its leader was sacked by President Thabo Mbeki. Mangosuthu Buthelezi's 10-year stint as home affairs minister was ended after the IFP and Mr Mbeki's African National Congress fought a bitter campaign. The ANC polled the most votes in the province of KwaZulu-Natal for the first time. The IFP had said it would contest the results in the courts but later dropped its protest. The two IFP members who were named in the cabinet did not attend the swearing-in ceremony April 29. The decision by Musa Zondi (deputy public works minister) and Vincent Ngema (deputy sports minister) not to take up their posts immediately reportedly followed a marathon party meeting to decide how to respond to Mr Buthelezi's sacking. Mr Mbeki then said he would look for other ministers who were willing to serve in his cabinet. Chief Mangosuthu Buthelezi might be out of the cabinet, but he has no intention of retiring. The IFP leader said April 28 he was "born to serve his people", as informed sources predicted he would take over as chairman of the National House of Traditional Leaders. His appointment had been part of a deal which ended political violence in which thousands of people died in the 1990s. The new cabinet is a sign of the ANC's dominance of South Africa. Most of the out-going team kept their portfolios, including the key ones of finance, foreign affairs, health and defence. Deputy President Jacob Zuma, hit by corruption allegations, also retained his position. "The message the president is sending to the financial world is that roughly the same South African team they have been dealing with remains in place... It is an attempt to signal stability," said independent political analyst Steven Friedman. Deputy President Jacob Zuma would have been a prime candidate for a shuffle as he has been named as a player in South Africa's major post-apartheid corruption scandal involving a multi billion dollar arms deal were it not for his personal popularity and his support in KwaZulu-Natal. Mbeki can ill-afford a major force roaming free in the party, out of his control or at least out of sight. Zuma, goes on trial this year on charges of fraud, corruption, theft of company assets, tax evasion and money laundering. DA leader Tony Leon predicted Zuma would be unable to survive the revelations that would emerge in the course of the trial. 

Criticism of cabinet reappointments
Aids campaigners and opposition parties have criticised the reappointment of South Africa's controversial health minister in the new cabinet. Manto Tshabalala-Msimang, who once suggested that those with HIV should eat beetroot and garlic, said she was "humbled and honoured" to carry on. South Africa has more people with HIV than any other country. Her department has been criticised for blocking the roll-out of Aids drugs and sending out confusing messages. The fact that Communications Minister Ivy Matsepe-Casaburri and Public Works Minister Stella Sigcau are in charge of ministries crucial to service delivery and economic development rubs salt in the wounds of those who would have preferred to have seen them fired. Matsepe-Casaburri is known for her failure to get a competitor to Telkom off the ground. As a result, opposition parties and many in the communications sector would have liked her to go. Another example was her attempt "by law, to take control of the South African Broadcasting Corporation's (SABC) editorial policy an attempt that was defeated by the opposition on constitutional grounds". Her critics say she has done little in her portfolio over the past five years. Sigcau served as public enterprises minister between 1994 and 1999, and was criticised there for not driving the restructuring of state owned enterprises. 

UN marks 10 years of post-Apartheid Democracy in South Africa
UN Secretary General Kofi Annan called the 10th anniversary of South Africa's battle to make the transition from apartheid racism to democracy "a struggle that galvanized the entire world community." April 27. The fight against apartheid was "one that rallied people and Governments behind a common objective: the objective of reaffirming the basic human rights and fundamental freedoms of all peoples," he said. The transformation was seen as little short of miracle, but "what made it possible was the South African people's determination to work together to heal the deep scars caused by racial discrimination, oppression, humiliations, denial and exploitation and to transform their bitter experiences into the binding glue of a rainbow nation," he said. The international community was rejoicing to see South Africans of all colours, ethnic groups and creeds, working together to forge a common future, as civil society organizations, the Government and the private sector addressed the harsh legacies of the apartheid regime - crime, poverty and HIV/AIDS, Mr. Annan said. Today South Africans have played key roles in trying to bring peace to countries in Africa, including Burundi and the Democratic Republic of Congo (DRC), and in 2001 their country became one of five countries that launched the New Partnership for Africa's Development (NEPAD), he said. "They are working with their brothers and sisters in the African Union (AU), the Southern African Development Community (SADC) and other organizations to advance the cause of development, justice and African unity," he said. "Today the entire United Nations family joins with the heroic people of South Africa as they dedicate themselves to working even harder for a bright future. We pledge our support in the struggle to further consolidate democratic institutions, to promote human rights and to build an ever more successful South Africa," he said.

Statistics SA: Report on a decade of Democracy 
Despite 10 years of progress there remains a significant underclass in South Africa that has failed to benefit from the transformation of the past decade. According to Statistics South Africa, a government department, approximately 28 percent of households were living below the poverty line in 1995. Four years later that percentage had increased to just under 33 percent. Closely linked to poverty is South Africa's high unemployment rate. Between 1995 and 2002 the number of people classified as unemployed, according to the narrow definition of those actively seeking work, had risen from just over 1.9 million to over 4.2 million - an increase of over 2.3 million. The department of labour says the national official unemployment average is 30.5 percent or 4.8 million people. However, the department uses a strict definition for "unemployed" that independent researchers have disputed, and some have pegged the general unemployment figure as high as 40 percent. The provision of clean water and sanitation has been a key government policy, especially as much of the burden of inadequate water supply falls on rural women, and is a factor in their continued poverty. Between 1994 and 2001 some 8 million people were provided with water for the first time. But a backlog remains of 7 million people still without access, and to reach them would require R360 million (US $55 million) in spending each year, according to a report by the Centre for Policy Studies authored by Khosa.

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AGRICULTURE

Figures Show Agoa Has Benefited South Africa


Agricultural exports from South Africa to the US rose 35% in 2003 despite the negative effects of the strong rand, contradicting claims that the US's African Growth and Opportunity Act (Agoa) did not benefit South African farmers. Critics have said that duty-free access under Agoa has "done nothing" to boost sales of African farm produce. African farmers, they say, are still struggling against import quotas and agricultural subsidies in the US. Subsidies to US farmers of about $180bn over 10 years along with non-tariff barriers such as food safety requirements are likely to have a negative effect on exports to the US. Despite these barriers, however, agricultural exports from South Africa that qualify for duty-free entry into the US under Agoa rose to $103,3m last year, compared with $76.6 in 2002, according to the US International Trade Commission. Agri SA and the agriculture department confirmed March 30 that Agoa had boosted sales. "It has helped us a lot," said Rolf Otto, deputy director of international trade in the department. Citrus farms are among the domestic agricultural industries that have benefited substantially from Agoa, which allows access of about 7000 products. SA has, for example, become the single largest foreign supplier of oranges to the US market in less than five years. South African growers supplied 48% of all US orange imports, worth almost $50m last year. US International Trade Commission data show that several other sectors recorded strong growth in exports under Agoa last year. Textile and apparel exports under Agoa surged 49% to $127m last year compared with 2002. The country's automotive sector was the largest user of the US trade initiative. Transportation equipment, such as vehicle components, exported under Agoa to the US last year totalled $643.4m, or about more than R4bn. This was 31% higher than the 483m worth of transportation goods exported to the US in 2002. Exports of all products that qualified for duty-free entry into the US under Agoa last year were worth $998m. Despite the rise, recent research by the South African Institute of International Affairs on agriculture trade found that Agoa had opened "few new opportunities for South African exports" across the board. This was largely because prior to Agoa, US tariffs on South African exports were already very low, the institute said. The import tariff on South African bottled wine, for example, was just 1.7% or $0.17 on a $10 bottle of wine. "The elimination of this tariff is unlikely to have much effect on the preferences of US consumers," it said. The institute said, however, that Agoa had opened new markets for some agricultural products. Pear, avocado, pimentos, citrus juice and grape juice exports had realised "phenomenal growth" over the last few years from a very low base. "What is less clear is whether Agoa has generated any new trade in these products or merely diverted exports away from other markets," the institute said. South Africa's negotiators are attempting to lock the Agoa benefits into a free trade agreement that is being negotiated between the Southern African Customs Union and the US that is due for completion in December 2004. 

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AUTOMOBILES

Component Exports Decline By 7 Percent

The strong rand appears to have broken the back of South Africa's strongest manufacturing sector, forcing motor vehicle component exports down for the first time after seven years of buoyant growth. Component exports dropped 7% last year to R21.3bn from R22.9bn in 2002, according to data released by government agency Trade and Investment SA (Tisa) April 5. Vehicle exports were also losing steam, with growth slowing to only 1.1% last year. Vehicle exports still raked in R19.5bn. "The decline (of component exports) ended the record-breaking export level cycle that had been experienced for seven consecutive years since 1995," said Tisa. The softening trend in component and vehicle exports is alarming, because the sector has grown substantially in its importance to the domestic economy. It has become one of the largest foreign currency earners and contributes 5.7% to South Africa's gross domestic product. The industry is being burnt by the strong rand despite the fact that it enjoys substantial assistance from government in the form of the Motor Industry Development Programme, which was introduced to save the industry from collapse in 1995. The negative trend is leading to manufacturing capacity, which is not easily replaced being wiped out. Delta and Dorbyl are among the companies that laid off workers last year, while US-owned company Prestolite shut down its factory in South Africa in December. National Association of Automotive Component and Allied Manufacturers (Naacam) head Clive Williams said that the setback could cause long-term damage. "This is not a short-term problem. It will hurt us for the next five to 10 years," he said. Along with the negative effects of the strong rand, exporters were also being affected by the sluggish world economy and excess global car manufacturing estimated at about 35%. The industry was also consolidating after a long period of buoyant growth, said Gustav Meyer of Tisa. Fred von Eckardstein of KPMG said it was impossible for the motor vehicle industry to maintain high growth levels of the past few years. "It had to start levelling off some time," he said. Tisa said it was important to note that the rand was much stronger against the euro and the dollar than it was three years ago when component exports increased by 47% in one year. A recovery in the motor vehicle sector was widely anticipated next year on the back of improving global conditions, a buoyant domestic car market and new export programmes announced recently by Volkswagen and Nissan among others.

Coega Project To Help Motor Industry Exports

The controversial Coega industrial development zone offers "enormous" potential value to the country's much-vaunted motor vehicle industry as it could present a solution to the industry's logistical woes. "As one of the largest infrastructure projects in Africa, the new harbour could ease the auto industry's logistical problems experienced at other local ports," says Port Elizabeth Regional Chamber of Commerce and Industry CEO Alfred da Costa. Motor vehicle companies are among exporters that suffered when the country's main ports became heavily congested last year. Turnaround times at Durban harbour are still not at the desired level. Da Costa says Coega could provide an ideal location as a transit point for shipments passing between the Far East, Europe and South America. Government is pouring several billion rand into infrastructure development, including a deep-water port at the Coega zone near Port Elizabeth. The zone forms part of government's efforts to attract large investments into export-orientated manufacturing operations. But the zone has failed to secure any large tenants to date, leading some to question whether or not it would become a white elephant. Da Costa says the zone represents a "great investment opportunity" for motor manufacturers and suppliers, warehousing or production facilities". The potential Coega holds for the motor industry will be high on the agenda of the 2004 Made In South Africa Automotive Conference taking place next month in Port Elizabeth Africa's largest vehicle assembly and component manufacturing hub. "With efficient infrastructure in place, Coega could develop as the industry's essential export gateway," says organiser Chris Wright. "Your country is ideally placed as a low-cost production centre for more than 30 other right-hand drive markets around the world." Motor exports have boomed over the past few years. The sector's contribution in 2001 comprised 12% of all of South Africa's total exports.

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BANKING

Nedcor in Talks On Bank Merger in Zimbabwe

Nedcor has confirmed that it is in talks to merge its Zimbabwe operations with that country's ailing Trust Bank. Nedcor subsidiary Nedbank and Old Mutual Zimbabwean, which together control Merchant Bank of Central Africa (MBCA), have agreed to start negotiations with Trust Holdings, with a view to merging its 100%-held Trust Bank and MBCA. Nedbank holds almost 39% of MBCA, while Old Mutual Zimbabwe owns just under 23%. If all works out, they expect to take a controlling shareholding in the new group, and will include staff and black economic empowerment interests among the balance of the shareholding. Trust Bank is one of five banks that have been baled out by the Reserve Bank of Zimbabwe's Troubled Banks Fund. Nedcor sees the two as a good fit as both are strong in corporate and commercial banking with similar client bases. Nedcor spokesman Don Bowden said MBCA was one of the banks to benefit during the banking crisis late last year as banks with strong controls and foreign shareholder support continued to attract money. "At one point they had to stop taking new business. There was a flood of money to banks that were predominantly owned by foreign banks," said Bowden. He said little funding would be required for the merger and that it could be financed from resources held in Zimbabwe by both Nedbank and Old Mutual. Analysts said Old Mutual would probably be more involved on the ground in Zimbabwe, given the extent of its operations and expertise in that country. There could be some opposition to the deal from Trust Holdings' strategic partner, First Mutual, however. First Mutual owns 25% of Trust Holdings and is one of Old Mutual's biggest rivals in the local asset management industry. Although there has been speculation that First Mutual could step aside if a deal with Old Mutual were to take place, Zimbabwe's Financial Gazette has quoted its chairman as denying this. First Mutual put its resources up as security for the liquidity support provided to Trust Bank by the reserve bank. No timetable has been set for the negotiations to be completed.

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FINANCIAL NEWS

Foreign Direct Investment Falls

Foreign direct investment (FDI) in South Africa fell $100m to $600m last year, but this was offset by a doubling of other capital inflows, mainly in South African equities and bonds, a new World Bank report on global development finance says. South Africa gets less than 1% of the FDI flowing into developing countries. The report shows that FDI to these countries slowed to $135bn from $147bn in 2002, suggesting South Africa's task in attracting a greater chunk of the global FDI pie will be increasingly difficult. World Bank senior economist Robert Keyfitz highlighted the volatility in the rand-dollar exchange rate as one factor that inhibited greater FDI flows to South Africa. "This kind of volatility would have discouraged FDI. But South Africa remains an attractive destination for FDI, with its dominant position in the region and a solid public commitment from government to a sound economic environment," he said. Keyfitz said that for more FDI to flow into South Africa greater stability in the rand exchange rate would be needed. But as global FDI to developing countries had reached its lowest level in eight years South Africa faced a tough task. Getting a grip on real FDI remains elusive as figures differ. The BusinessMap Foundation put FDI last year at about R40bn, while the Reserve Bank put it at about R6bn. The World Bank report shows, however, that although FDI dropped, overall total capital inflows into South Africa boomed last year. Driven mainly by bonds and equity investments, gross inflows jumped to $10.7bn from $5.4bn in line with World Bank trends of greater capital flows to the developing world. This meant more money was flowing into South Africa than most developing countries. Overall, private capital flows to developing countries jumped to $200bn from $155bn the year before. This, according to World Bank chief economist François Bourguignon reflected an improving global economic picture. While some economists have played down the importance of FDI in the light of increased portfolio flows into South Africa bonds and equities, BusinessMap director Reg Rumney said FDI remained important to economic development. "Portfolio capital is short term in nature, whereas genuine FDI into South Africa plays a crucial role in building local industries and integrating this economy into the global export markets," he said. He cited the example of South Africa's manufacturing sector, which benefited from FDI in the late 90s and was now one of South Africa's dominant export industries. "We need FDI more than ever in this country because we need to build that kind of capacity in high value-added industries. We need companies to invest in certain strategic areas to do this," he said. Last year South Africa's growth rate of 1.9% paled against the 5.4% recorded by other developing countries. Along with a more stable rand, an increase in South Africa's growth rate could well be the catalyst for a greater share of the global FDI pool.

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FOREIGN ECONOMIC COOPERATION

AU-EU Call for Co-Operation On Completion of Doha Negotiations

The African Union-European Union Troika meeting in Dublin, Ireland, April 1, agreed on a co-ordination and co-operation approach towards the successful completion of the Doha Development Agenda negotiations. The AU delegation comprised Minister Nkosazana Dlamini Zuma, Chairperson of the AU Commission Alpha Omar Konare and Foreign Minister of Mozambique Leonardo Simao, the current Chair of the AU Executive Council of Ministers. The EU Troika was represented by a delegate from the EU Commission, Irish Foreign Minister Brian Cowen and Foreign Minister of the Netherlands Jaap de Hoop Scheffer. According to a communiqué issued after the meeting, the two parties agreed that the move would promote an open, equitable, rule-based and non-discriminatory multilateral trading system that would benefit all countries in the pursuit of sustainable development. The goal of the Doha Development Agenda is to reduce trade barriers so as to expand global economic growth, development and opportunity. "The first priority should be to make all joint necessary efforts to resume the work after the Cancun World Trade Organisation ministerial meeting. "In this context, the EU and Africa will work in accordance with the Doha Ministerial Declaration, which placed the needs and interests of developing countries at the heart of the Doha work programme," the communiqué said. South Africa is arguing that the international trading system ought to be changed to focus more on developmental issues. It says progress in other areas would be impeded if there were no progress in agricultural issues and market access. Many developing countries have expressed concern about the EU and United States' decision to subsidise their agricultural farmers, which is hurting particularly African farmers, making their access to these markets difficult. In a report released last year, the World Bank vindicated these concerns pointing out that inequities in the world trading system dragged down export growth in developing countries, particularly in Africa. 'For Sub-Saharan Africa, lowering agricultural subsidies and opening markets to agricultural products is of particular importance, since the majority of Africa's poor live in rural areas and their income is to a large extent dependent directly or indirectly on agriculture,' said the report.

South Africa Flouts AU Corruption Bill - Transparency International

Corruption watchdog Transparency International has warned that South Africa could be in breach of the African Union (AU) convention by allowing political parties to keep the sources of their private sector donations secret. Nongovernmental organisations have criticised government for not addressing this in the soon-to-be enacted Prevention and Combating of Corrupt Activities Bill as it leaves the door open for business to buy political influence without anyone being aware of this relationship. South Africa's major political parties are set to clash with the Institute for Democracy in South Africa (Idasa) in court later this year contesting Idasa's demand that they disclose the identity of private sector donors. But Transparency International said South Africa's reluctance to compel this disclosure in the new Corruption Bill may put it in breach of the AU convention on the preventing and combating of crime, which it signed in July last year and is expected to ratify once Parliament opens again. Article 9 of the AU convention obliges signatories to "adopt such legislative and other measures to give effect to the right of access to any information that is required to assist in the fight against corruption and related offences". Article 11 obliges countries to "adopt legislative and other measures to prevent and combat acts of corruption and related offences committed in and by agents of the private sector". Finally, article 12 said nations must "create an enabling environment that will enable civil society and the media to hold governments to the highest levels of transparency and accountability in the management of public affairs". Transparency International SA president Daryl Balia said this AU convention stated clearly that countries were obliged to pass laws to close the door on private sector players buying influence legislation from which the South African government has shied away. In its global report late March, Transparency International said South Africa had missed a "golden opportunity" to address the secrecy of political donations in the Anti-Corruption Bill, which is due to be signed this year. In seeking to keep donations secret, South Africa has followed the lead of the US one of the staunchest opponents of disclosure of political party funders with a deeply entrenched system of private sector patronage for political parties. Balia said the resistance to this issue was "a threat to the quality of democracy" in all those countries resisting these calls, including South Africa and the US". "We do not want to infringe on a company's right to give donations, but knowing that this capacity has been used to buy influence in the past, we have to create an environment where donations are not used to subvert the political process," he said.

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HIV/Aids 

Threatens to Undermine Democracy

HIV/AIDS may pose a serious threat to South Africa's young democracy in elections to come, according to a study just released by the Governance and AIDS Programme (GAP) of the Institute for Democracy in South Africa (IDASA). The ongoing study began a year ago, with the objective of providing a detailed analysis on the impact of HIV/AIDS on electoral processes. It questioned whether there were any indications that the epidemic could undermine democracy and the legitimacy of future ballots. A concern raised by the research was that most of those infected with HIV fall within the age range of eligible voters, affecting the credibility of the voters' roll, the ability of sick people living with AIDS to get to a polling station, and the likelihood that, on election day, caregivers would have to forfeit their vote to look after the ill. Other Southern African countries are also experiencing the repercussions of the crisis. "The impact of HIV/AIDS has forced electoral management bodies to face a number of problems regarding the voters' roll. The number of registered voters on the voters' roll is not a true reflection of what's happening on the ground. Our voters' rolls are bloated with dead voters," said a report on Malawi to a regional electoral commissioners' forum, held last year by IDASA and the UN Development Programme. Women in particular risked disenfranchisement, as they were most affected by the epidemic, the research suggested. Young voters infected with HIV could also become disillusioned with the democratic process if little action to address the epidemic was taken by the government. "The right to vote imposes positive obligations on the state to ensure the right is fulfilled - this is how the constitutional court has interpreted the role of the state," one of the IDASA study researchers, Ann Strode, a senior law lecturer at South Africa's University of Natal, told PlusNews. Ensuring that mechanisms for special voting for the ill and infirm were working was essential, as was tackling the apathy of young voters infected with HIV, or those with AIDS. According to a report prepared by the South African Department of Public Service and Administration, by 2011 about 28 percent of skilled workers would be infected with HIV. South Africa's Independent Electoral Commission (IEC) would have to compensate for that loss, while continuing to provide a credible service. "Democracy is all about participation, and the IEC has an ongoing role to play to ensure that people know how to vote, what is required of them to vote, where to vote and why they must vote. Special voting must be made available, in certain circumstances, so that special people are treated specially, to ensure an equal outcome," Strode said.

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MANUFACTURING

Strong Rand Hurts Sector

South Africa's manufacturing sector has been shedding jobs as the strong rand and drastic cuts in import tariffs erode competitiveness. The clothing and textile sector best highlights the problem: it has been haemorrhaging jobs in recent years after riding the wave of a weak rand against the US dollar, which made South African products extremely attractive to foreign buyers. Job security in the clothing and textile sector, in particular, came under the spotlight during the election campaign, when shop stewards of the South Africa Clothing and Textile Workers Union (SACTWU) called on political parties to address workers' concerns. SACTWU Secretary-General Ibrahim Patel told IRIN that the strong rand, fuelled by US dollar weakness and high South African interest rates, coupled with sharp decreases in trade tariffs had hurt the sector. "Last year we recorded 20,000 job losses," Patel said. "There was a significant increase in imports, largely from China, as well as a fairly noticeable decline in exports - both facilitated by the strengthening of the rand." South Africa and Mauritius are the only countries in the region with established textile industries, but the cost of labour is relatively expensive and productivity is lower than in some competitor nations, such as China. The labour union believes the root causes of the large-scale job losses lay with the South African government's rush to liberalise markets by cutting import tariffs in the mid- to late 1990s. The sudden strengthening of the currency caught many by surprise - South African Airways lost billions on rand hedging, mining companies reported erosion of their earnings, and the clothing and textile sector found overseas orders drying up. South African exporters, particularly in the clothing and textile sector, were not as competitively priced on international markets as two years ago, analysts said. In 2003 clothing and textile exports fell by 13 percent.

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MINERALS & METALS

South Africa's Mining Players move into China

Experts believe that a recent visit to China by Anglo American CE Tony Trahar may be a signal that the mining sector in South Africa is finally focusing its attention on the vast potential of this explosively developing economy. The challenge will be to catch up with and then outpace Australian operators, which are well established in China. "South African firms have to be more directly involved the China opportunity is too attractive to ignore," says Beijing-based South African consultant Kobus van der Wath of The Beijing Axis. "The Chinese mining sector is becoming an attractive option for resource companies from around the world. Many are already here; many are on the way," he says. "However, South Africa's prominent place in global mining has not yet been reflected in aggressive direct investments in China." He notes that Anglo, Gold Fields and Kumba Resources, among others, are already involved in China. Meanwhile, Sasol is discussing a joint venture project to build a coal-to-fuel plant in China. "But despite these examples, most South African mining players still have to act. "Not only is there merit in looking at China as a destination for direct mining investments, but China's overseas expansion may offer opportunities to South African firms for co-investment with Chinese partners in Africa." Another South African China watcher, Emerging Market Focus director Martyn Davies, says South African mining houses have adopted a "cautious approach" to China. "However, with liberalising investment laws, our large mining companies are starting to look at China in a more serious light. "Anglo American and BHP Billiton are both increasingly active in seeking prospecting opportunities in the country. He cautions, however, that the Australians are dominating. "Australian mining firms have been particularly active in China for a few years and have built up a lead over South Africa. They have the established relationships and local on-theground knowledge to take advantage of China's liberalising mining investment climate." 

Norilsk aims to take Gold Fields

Russia's Norilsk Nickel, which recently bought a 20% stake in Gold Fields for R7.6bn, has signalled its desire to take over the South African company, which is the world's fourth-biggest gold producer. Analysts said the move would not be a surprise, but they were waiting to see the future structure of any arrangement between Gold Fields and its Russian investor to see what future role the South Africa-listed entity would play. Leonid Rozhetskin, the deputy chairman of Norilsk's management committee and the chief deal maker for controlling shareholder Vladimir Potanin, told a session of the Russian Economic Forum in London the company intended to increase its Gold Fields stake, according to RIANovosti, the state news agency. Norilsk's purchase of 20% from Anglo American was the largest offshore purchase by a Russian company in history. The Russian government has told Business Day it is investigating whether the terms of the deal comply with Russian law and central bank regulations. Fresh news that Potanin is attempting to take over Gold Fields, possibly by swapping his Norilsk shares for western-listed Gold Fields scrip, is likely to attract heightened concern in the Kremlin at a cash-out by the well-known oligarch. Rozhetskin's spokesman, Sergei Polikarpov, declined to comment, but sources close to the company said the remark would indicate an intention to take majority control. One source said it was "very odd" for Rozhetskin to telegraph a buying move to the market. Maxim Matveyev, a metals analyst at Alfa-Bank in Moscow, said if the Gold Fields share price did not rise in anticipation "theoretically 30% of Gold Fields could cost Norilsk another $1.7bn". The balance sheet could cope with the extra debt, Matveyev said. A Gold Fields spokesman said April 24 he was not aware of any attempt by Norilsk to boost its stake above the current 20%. However, HSBC analyst Allan Cooke said such a move would not be a shock to the markets. "I would not be surprised if they wanted to increase their stake."

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PROPERTY MARKET

South Africa's house-price growth is World's fastest

The South African residential property market has outperformed that of first-world countries, with the highest nominal growth rate over the past 12 months, according to real estate portal ResearchWorldwide.com. South Africa claimed the top spot following last month's 22.7% nominal year-on-year increase in house prices as reported by Absa bank. Nominal growth rates exclude the effects of inflation. "Low interest rates, the emergence of a rapidly growing black middle class and the longest period of uninterrupted economic growth in half a century have contributed to the current housing boom in South Africa," the company said yesterday. The results were based on house price indices from 20 countries, including the US, UK, Australia, New Zealand, Germany, France and Hong Kong. In nominal terms, growth in house prices of between 18% and 20% was expected this year. In real terms, taking inflation into account, growth of between 15% and 17% was expected this year. This was still relatively high, Du Toit said. He predicted a further slowing in house-price growth next year. However, this did not imply a drop in house prices. "In 2005 we're looking at nominal growth of up to 12% and real growth of around 6%," he said.

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TELECOMMUNICATIONS 

Eskom Marches Into Africa

While Eskom Enterprises has posted a R804-million loss due to its expenditure in 2003 on telecommunications roll-out, its march into Africa goes on a pace in 33 countries. Its losses arose from an R800-million programme to install a 4,800km fibre-optic cable network in South Africa for the Second National [Telecoms] Operator (SNO), and R154-million in un-recovered expenditure in Telkom Lesotho, where it is the major shareholder. The area of interest and growth for Eskom Enterprises is new business opportunities in Africa. Thulani Gca bashe, Eskom Enterprises' chairman, says it has a presence in 33 of Africa's 54 countries. Its projects include: A 15-year management contract on the Mali hydro-electric scheme that serves Mali, Mauritania and Senegal; The development of a unified grid for Africa that will centre on the expansion of the Inga Hydro project on the Congo River in the Democratic Republic of Congo. When completed, the project will provide 40 000MW, more than Eskom's total current generating capacity; A 51% holding in a joint venture in Zambia running two power stations with a capacity of 38MW; The refurbishing of four electricity plants in Libya; and The operation of two power stations on the Nile River, providing Uganda with 95% of it s electricity supply. Apart from its large investment in telecom s in South Africa, Eskom Enterprises spent R581-million on this sector in Lesotho in 2003. This included a R100-million investment in Econet EZI-CEL. Now in its second year of operation, Econet has already secured 35 000 subscribers or 40% of the market share. Eskom Enterprises' inability to generate business from its telecoms infrastructure in South Africa is viewed in the telecoms industry as a lost opportunity. The Ministry and Department of Communications has failed to license the SNO over the past three years, while seeking a large international player to take a 51% interest. It has announced two black economic empowerment consortia, CommuniTel and Two Consortium, will take a 13% portion each of this shareholding while Government retains a 25% holding. Gcabashe told Business Times this week that the major part of Eskom Enterprises' expenditure had been the roll-out of "very current technology" using fibre-optic cabling on electricity power lines, to provide voice and data communications. He dispelled any fear that convergence legislation would impede this process: "It is an inevitable technical development that you cannot stem." Eskom Enterprises' other major albatross has been the pebble-bed modular reactor, a nuclear energy project facing a watershed after years of research.

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